7.2.3 Human Resource Definitions
Needed Complement: The number of workers needed this year if the company is to avoid overtime.
Complement: The number of workers in your workforce this year. This year’s complement percentage is entered on the Production spreadsheet in the This Year (%) column. It also appears in the second row of the Human Resource spreadsheet. Suppose you enter a percentage that is less than 100. Employees must work overtime to complete the work schedule. Excessive overtime drags down productivity and increases turnover. 2nd Shift and overtime workers cost 50% more per hour than workers on 1st Shift.
1st Shift Complement: For each product, if your schedules are less than or equal to the 1st Shift Capacity, your workers will only be used on a 1st Shift.
2nd Shift Complement: If for any product your schedule is greater than your 1st Shift Capacity, and if the This Year (%) is at or near 100%, workers will be added to a 2nd Shift. 2nd Shift workers are paid 50% more per hour than 1st Shift workers. 2nd Shift scheduling has no impact upon the Productivity Index.
Overtime Percent: The percentage of work performed on overtime. 100% means that every 1st Shift worker is doing a double shift. 15% means that, on average, workers perform 15% overtime. Overtime increases turnover and drags down productivity.
Turnover Rate: The percentage of workers who left the company last year, excluding downsizing. About 5% is rooted in unavoidable factors like retirement, relocation and weeding out poor workers. Remaining turnover is a function of employee dissatisfaction. The best workers leave first. Turnover is driven down by Recruiting Spend and Training Hours. Turnover also goes up as a result of overtime and a substandard compensation package from the Labor Negotiation.
The Turnover Rate ignores downsizing factors. It reflects the turnover in the population of workers that you keep after downsizing (that is, reducing production schedules or increasing automation).
New Employees: Employees recruited this year. At a minimum, New Employees reflects replacement of workers lost during the course of the year to turnover. It also includes workers hired in January to increase the Complement from last year. New employees incur a Recruiting Cost. As a simplifying assumption, the simulation does not rehire fired or separated workers.
Separated Employees: Employees lost because of downsizing or increases in Automation. Specifically, Separated Employees is Last Year’s Complement minus This Year’s Complement. All separations occur in January and incur a Separation Cost.
Recruiting Spend: Recruiting Spend is the extra amount budgeted per worker to recruit high caliber workers. The higher the budget, the better the worker, resulting in a higher Productivity Index and lower Turnover. Your entry is added to a base amount of $1,000 per new employee. $0 means no extraordinary effort is spent recruiting new people. Diminishing returns apply after $5,000 per worker.
Training Hours: Training Hours is the number of hours each year that each individual worker is taken off-line for training and development. For example, 40 means that each worker will spend 40 hours in training this year. Training produces a higher Productivity Index and a lower Turnover Rate. The more time off-line, the higher the needed Complement. Each training hour costs $20.00 per worker in training costs.
Productivity Index: The Productivity Index indicates how the general workforce compares with the workers employed in Round 0. 100% means that current workers are just as good as original workers. 110% means that, on average, you only need 91% (100 / 110 = 91) of the Complement to do the same work as a workforce comprised of original workers. In short, higher productivity means fewer workers are required, and that drives down per unit labor cost. Recruiting Spend and Training Hours drive up the Productivity Index. Overtime drags down the Productivity Index. This Year actually means by the end of this year. Last year’s Productivity is the driver behind your Complement requirements this year because it indicates your productivity level on January 1.
Recruiting Cost: The amount spent to recruit new workers. It equals the number of workers recruited times ($1,000 + Recruiting Spend).
Separation Cost: The cost to separate (fire) workers. If you downsize your workforce (by reducing production schedules or increasing automation), each worker is given a separation package worth $5,000.
Training Cost: Training costs are driven by Training Hours. Each worker-training hour costs $20.00 and pays for such things as educational materials, instructors, etc. Training costs do not include time off the job.
Total HR Admin Costs: Total HR Administrative Costs are incorporated into the income statement’s admin line item. Costs are allocated to products based upon their Complement. For example, if Able has 10 workers and Acre has 20, then the HR Admin costs (training, recruiting, etc.) would be twice as much for Acre as for Able.